The invisible hand of internal markets in mutual fund families

Luis Goncalves-Pinto*, Juan Sotes-Paladino, Jing Xu

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

3 Scopus citations


The internal markets of fund families can encourage member funds to deviate excessively from their investment mandates. Theoretically, we show that fund managers following sufficiently different style benchmarks can engage in risk-shifting by trading with one another at low cost inside their family. This benefits the managers and the family even in the absence of a family-level strategy. However, the excessive risks taken by the managers can be costly to fund investors. Empirically, we find support for the positive effect of intra-family style diversity on offsetting trades across funds and on deviations of funds’ portfolios from their benchmarks.

Original languageEnglish
Pages (from-to)105-124
Number of pages20
JournalJournal of Banking and Finance
StatePublished - Apr 2018
Externally publishedYes

Bibliographical note

Publisher Copyright:
© 2018 Elsevier B.V.


  • Benchmarking
  • Cross-trading
  • Mutual fund families
  • Stock illiquidity


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